The Office of the US Trade Representative (USTR) announced on October 15, 2010, that it has launched an investigation under Section 301 of the 1974 Trade Act to probe certain acts, policies and practices of the Government of China affecting trade and investment in the green technology sector. The USTR stated that they are going to thoroughly examine and verify the United Steelworkers Union’s (USW) claims, and noted that “[f]or those allegations that are supported by sufficient evidence and that can effectively be addressed through WTO dispute settlement, we will vigorously pursue the enforcement of our rights through WTO litigation.”
The investigation was instituted in response to a petition filed by the USW on September 9, 2010. The USW petition contends that certain policies and practices adopted by China to stimulate and protect its clean energy industry are inconsistent with its World Trade Organization (WTO) obligations, and that these policies and practices have enabled China to emerge as a dominant supplier of wind and solar energy products, advanced batteries, and energy-efficient vehicles.
The USW petition asserts that China violates its WTO commitments by:
- Restricting access to critical raw materials (i.e., “rare earth” materials);
- Granting subsidies to Chinese manufacturers that are WTO-inconsistent because they are contingent upon either export performance or the use of domestic content;
- Granting other trade-distorting subsidies to Chinese manufacturers that injure foreign competitors;
- Imposing regulations that discriminate against imported goods and foreign investors; and
- Imposing technology transfer requirements on foreign investors.
Among the various accusations made, the USW contends that China violates its WTO commitments by imposing export restrictions on “rare earth” minerals that are used to produce several green technology products, including advanced batteries, solar panels, and fluorescent light bulbs. According to the petition, China is also ignoring its WTO commitments by granting its clean energy industry a number of direct and indirect subsidies, including R&D grants, low-interest loans, and export credit guarantees. Further, the USW alleges that China employs discriminatory practices by imposing domestic content and technology transfer requirements on foreign investors manufacturing in China.
The USW claims that these Chinese practices have injured American workers in the green technology sector and have caused “serious prejudice to U.S. interests.” Therefore, it requests that the Obama administration commence dispute settlement proceedings in the WTO to require China to reverse these “unfair and predatory practices.”
Brief Background on Section 301 Investigations
Under Section 301 of the 1974 Trade Act, US businesses and unions may file a petition with the USTR requesting that a particular act, policy, or practice of a foreign country be investigated as to whether it violates rights or denies benefits to the United States under trade agreements, or is unjustifiable and burdens or restricts US commerce. Stated simply, Section 301 provides US businesses and unions a formal mechanism through which they can petition the US government to take action before the WTO.
The USTR is required to review the allegations presented and determine whether to initiate a formal investigation not later than 45 days after a petition is received. In this case, the USTR decided on October 15, 10 days earlier than required by law. This was likely done because October 15 was also the statutory deadline for the US Treasury Department to release its semi-annual Report on Foreign Exchange, a.k.a. the “currency manipulator” report. That report is the subject of intense debate, as many in the Congress want the President to declare China a “currency manipulator.” However, the Treasury Department announced that it would delay the release of the report. The US government (in all likelihood) timed the announcement of the Section 301 investigation in order to avoid criticism over that delay.
In general, upon initiation of a Section 301 investigation, the USTR is required to immediately request consultations with the foreign country concerned; however, the law does permit the USTR, after consulting with the petitioner, to delay such a request for 90 days in order to verify and/or improve the petition to ensure an adequate basis for consultation. Here, the USTR decided to utilize the 90 day period, citing the “number and diversity of the acts, policies, and practices covered by the petition.” The USTR further stated that during this period, it will seek and take into account information and advice from the petitioner and the international trade advisory committees (committees filled with the business community that advise the President on trade policy), as well as public comments submitted in response to a Federal Register notice.
If an investigation reveals practices that are allegedly inconsistent with a trade agreement to which both the United States and the responding nation are parties, the USTR is required to invoke the consultation procedures set forth in that trade agreement. Thus, if consultations are requested here, they will be made under the WTO Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU). Under WTO rules, such consultations must run for 60 days (unless the parties agree otherwise); only then can the United States request the establishment of a WTO dispute settlement panel.
The USTR decision to initiate this investigation does not necessarily signal that the United States, following consultations with the Chinese, will seek formal dispute settlement proceedings at the WTO on every allegation made in the USW’s original petition. However, Friday’s action is a significant step by the US government, and businesses involved in the production, exportation, or importation of green products should follow this issue closely.
Moreover, if the United States does ultimately rely on this Section 301 petition to initiate a trade dispute against China at the WTO, it would resurrect Section 301, which had been left largely dormant for several years. Most observers considered Section 301 to be an ineffective tool for prompting US government action. The USW petition could alter that view.
For more information about this Section 301 investigation, or any other matter raised in this Legal Update, please contact Sydney H. Mintzer at +1 202 263 3866, Timothy J. Keeler at +1 202 263 3774, or Felipe Berer at +1 202 263 3306.